Q: How did Disney's streaming business perform this quarter?

With a heavy focus on streamlining operations and revamping business segments that have been underperforming, Disney's fiscal full year investor presentation felt subdued relative to previous quarters, despite a very strong streaming performance. Disney added 6.9m new core Disney+ customers in the fiscal fourth quarter of which 6.4m were international (excluding Indian operations). Disney+ now reaches 112.6m customers globally. Iger said 2m new ad-supported customers were added in the quarter bringing the ad-tier total to 5.2m customers. 

Given that there was barely any change in the US core Disney+ subscriber base, much of that ad-customer acquisition must have come from existing customers migrating across from the premium tier - something Disney is actively encouraging through aggressive price differentiation. Although Hulu subscribers dropped slightly in the quarter, Iger said he remained confident that Disney's Direct-to-Consumer (DTC) business overall would reach profitability by fiscal Q4 2024. DTC losses for the quarter were $420m (compared to $1.4bn in the same quarter a year earlier)

Q: What's the strategy for Disney as a whole?

Much of the focus of Disney CEO Bob Iger was on continued streamlining of the business. There seems to be a competition among studio CEOs at the moment to vastly exceed their own cost cutting targets (we've seen targets beaten by both Paramount and Warner Bros. Discovery in recent months); and, it appears, the magic number is $7bn+. Not to be outdone, Iger said Disney was now on target for $7.5bn in cost 'efficiencies', up from a target of $5bn previously. Disney's strategy is now focused on a series of core pillars: reaching streaming profitability; developing ESPN as a fully-fledged direct-to-consumer offering; a new integrated entertainment bundle domestically; and revamping the studio business. All of these strategies feed one another and feed the streaming window. 

Starting with theatrical, Iger said the studio had moved around the time of the pandemic towards increased output, which wasn't conducive to quality. Moving forward, Disney will look to make fewer movies of better quality with Iger claiming he would personally 'roll up his sleeves' to make that happen. Movies, he said, particularly hit 'pay one' movies, were a key differentiator between Disney+ and Netflix, Iger argued. 

Advertising is central to Disney's streaming strategy with international roll-outs of the ad tier beginning this month. We can expect continued moves to push customers (both old and new) towards the ad tier, both domestically and internationally. Advertising technology will remain a major area of investment for the company, with Disney's ad expertise seen as another competitive advantage in an increasingly crowded market. ESPN and Hulu both play into another wider strategy that Disney is pursuing: creating the ultimate streaming bundle, with appeal across a broad demographic customer base. 

Bundling is a significant contributor to reduced churn Iger said. Disney said last week that the remaining stake in Hulu, currently owned by Comcast, would be acquired. It now plans to launch a 'single app experience' (Disney+ with Hulu) in beta in November with a full launch in spring of 2024. But that bundle will be taken further. As Disney transitions to a full DTC model for ESPN, it will also launch a 'full-Monty' bundle of Hulu, Disney+ and ESPN (ESPN will also remain stand-alone as an option). We are, of course, back to a traditional pay TV strategy of providing content for all the family in a cost-effective tier to increase subscriber retention. Disney (and arguably Warner Bros. Discovery) are the first to get there, but others will all follow. It's a strategy we said was essential to the future of streaming in a report back in 2019 and, had the pandemic streaming boost not happened, surely would have been necessary sooner.

Q: What can we expect next?

Disney's free cash flow returned this quarter to pre-pandemic levels, reaching $8bn, and share holders will be celebrating as the board recommends a dividend. Iger said the company as a whole was transitioning from 'fixing' to 'building' again and that summed up the mood of the whole presentation. The company is clearly laser-focused on proving Wall Street wrong and showing that a direct-streaming business can be the profit driver that Iger has always believed in. Moving through the coming quarters, then, it's clear that cost-savings and narrowing strategic focus will continue to take centre stage. Streamlining will include exploring strategic options for linear channels (which continue to see declines in both advertising and affiliate revenue) and there will surely be deals to be done there, along with the divestment of the Indian operations, which tellingly were not mentioned at all. 

For content, less theatrical output is only one the changes we will see. Disney said it would reduce content spend from $27bn in fiscal 2023 to $25bn in fiscal 2024 with a $4.5bn reduction in content outlay on a cash basis. The power of better movies (albeit fewer going forward) in driving customer acquisition for streaming would allow Disney to invest less in TV series too, Iger said. And despite continuing to look for partnerships for ESPN, sport will clearly remain as a core content plank - in the domestic mix at least. Disney said 40% of its content spend went to sports and that it would build ESPN into the pre-eminent sports platform. This mix of restraint towards content, shedding of non-core assets and relentless pursuit of cost cutting will doubtless continue until Wall Street is satisfied that the streaming model ain't broke. If Iger is correct, then that means through 2024 at least.